Troubled Knight Capital nears a deal for funding

Michael Bow is a reporter at City A.M. covering private equity, funds, investments and asset managers. He can be reached on michael.bow@cityam.com

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Michael Bow

US EQUITY traders will today give their verdict on stricken deal maker Knight Capital following an audacious last minute bid to save the firm, which last week lost $440m (£281m) due to a technical trading glitch.

Several parties were locked in talks last night to provide a financing deal for the market maker, whose algorithmic trading software went haywire last Wednesday incurring huge losses.

A source said the firm needs to announce a deal before US markets open this afternoon to assure clients that it remains viable.

It is understood a consortium of investors were close to a $400m rescue deal in the early hours of this morning, with sources claiming that the rescuers include Blackstone, General Atlantic, TD Ameritrade and Stifel Nicolas.

The investment is expected to be made through convertible preferred stock, which will have a conversion price of $1.50 per share and carry a coupon of two per cent.

The New York Stock Exchange cancelled trades in six stocks last week after an apparent bug in Knight Capital’s trading software led to a flood of mistaken trades.

Over the weekend, Securities and Exchange Commission chairman Mary Schapiro issued a statement calling the event “unacceptable” but reassured investors that circuit breakers put in place following the 2010 “flash crash” had worked.

“Reliance on computers is a fact of life not only in markets everywhere, but in virtually every facet of business. That doesn’t mean we should not endeavour to reduce the likelihood of technology errors.”